Alibaba Group chairman and CEO Ma Yun speaks during a press conference on October 17, 2011 in Hangzhou, Zhejiang Provinceo of China. The value of transactions on Alibaba’s Taobao retail platforms doubled last year to hit $63 billion.

Alibaba Group’s Taobao websites are virtually synonymous with online shopping in China, but one venture capitalist with experience navigating the Chinese Internet says that may not always be the case.

In China e-commerce is all about discount shopping, said Hurst Lin, general partner at venture capital firm DCM and former COO of Chinese web portal and microblog operator Sina, but that won’t last. Mr. Lin believes that in several years, Chinese consumers will have more discerning taste and that online retailers with the best design and branding will challenge the dominance of Alibaba Group’s Taobao websites.

DCM has investments in several e-commerce companies focused on China, including online lingerie retailer La Miu and health and beauty seller Lumi. “Today, what you’re looking at is discount,” Mr. Lin said. “That’s what Taobao is all about—the cheapest stuff, comparison shopping.” What Taobao websites offer is similar to what eBay offered to online shoppers in the 90s, he said. “When I was in the U.S. in the 90s, I would go on eBay and check on the price first.”

Taobao Marketplace, a website for consumers to sell to other consumers, and Taobao Mall, where larger retailers can open online storefronts to sell their products to consumers, are currently the largest online shopping sites in China. But growing competition has recently begun to erode Taobao’s market share. Its share of online purchases in China slipped to 71% by value in the second quarter from 75% a year earlier, according to Analysys International.

But Mr. Lin said that “eBay is declining” in the U.S. and though Taobao is still on an upswing, its dominance will eventually decline as well. He and other venture capitalists are now looking for trends that will pick up two or three years down the line. Taobao “will have their heyday for another four to five years, then eventually consumers” will go to online retailers that specialize in specific product categories, Mr. Lin said, adding: “Taobao better go public.”

Alibaba chairman Jack Ma has said the company doesn’t have plans for an initial public offering of Taobao, but that he wouldn’t rule out an IPO for Alibaba Group. The value of transactions on Taobao had doubled last year to hit 400 billion yuan ($63 billion). Taobao sites didn’t disclose transaction numbers this year, but Mr. Ma said he expects the number to reach a trillion yuan in 2012.

Mr. Lin believes e-commerce companies, rather than simply competing on price, will eventually have to differentiate themselves by offering better design, more entertainment value and services that increase margins. For examples, he cited flash sales websites that add a sense of urgency by setting time limits for people to keep purchases in their virtual shopping carts or a website that offers buyers the ability to do swaps with other buyers if they have a last-minute change of heart after placing an order.

Mr. Lin said 360buy.com, also known as Jingdong Mall, another Taobao challenger, has done well to attract consumers with low prices and fast delivery service. “It’s fantastic,” he said, but it’s still unclear how the company will make money given its low profit margins. He said he believes 360buy “needs to go one step further,” adding “it’s not all about discounting. It’s about information, it’s about entertainment, it’s about social” and “when those things come you can charge incremental value.”

An Alibaba Group spokesman said the company is addressing the changing tastes of Chinese consumers with Taobao Mall, which “is focusing on service quality” and with its shopping search engine eTao which “provides info other than pricing,” including “product guarantees, user reviews, shipping options etc.”

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